Equity Release explained

Equity release could help unlock tax-free cash from your home

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Equity release could help unlock tax-free cash from your home

If you’re a homeowner, aged 55 or over and looking to release equity from your property, then an equity release plan might be a good option for you. You could repay your current mortgage and/or release a lump sum for retirement plans.

  • Lump sum of tax-free money
  • Continue to live in your own home
  • No monthly repayment option
  • Protect a percentage of your property value for your loved ones
  • Maintain 100% home ownership*
  • No-negative-equity guarantee

How does an equity release plan work?

There are two types of equity release:

1. Lifetime mortgage

A lifetime mortgage is a long-term loan secured against your home, which doesn’t need to be repaid until you die or go into full-time care. You will still retain ownership of your home and should continue to use the property as your main residence. When you die or go into long-term care, the house will be sold and your loan will be paid off.

Read more about lifetime mortgages>

2. Home reversion

Home reversion is where you sell all or part of your property to a home reversion provider at an amount less than the total market value in return for tax-free cash. You then continue to live in your home as a tenant without paying rent, providing you keep the property well maintained and take out building insurance.

Read more about home reversion plans>

Equity release considerations

There are a few things you should consider before deciding to take out an equity release:

Your property will not immediately go to your beneficiaries when you pass away – however, you can choose to safeguard some of the property’s cash value to use as an inheritance for your family.

It may be that your circumstances change after releasing equity from your home, in which case you may not be able to rely on your property if you need money later in your retirement for unforeseen medical emergencies or events.

Releasing equity from your home can change any benefits you are entitled to, as any money released in equity from your property can affect your income and capital.

Equity release vs other loan options

Equity release is only suitable if you haven’t got any other savings you could use instead. Depending on your circumstances there may also be other loan options that are more appropriate and less expensive for you, such as a secured loan.

If you need to release a substantial amount of equity from you home, downsizing your property might also be an option. Before deciding which option is right for you, it’s always a good idea to look at the other options available and seek professional advice.

Equity release may involve a home reversion plan or lifetime mortgage which is secured against your property. To understand the features and risks ask for a personalised illustration.

Equity release requires paying off any existing mortgage. Any money released, plus accrued interest would be repaid upon death, or moving into long-term care.

All equity release enquiries will be passed to Age Partnership.

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Equity Release FAQ

Equity release is a way to get cash from the value of your home. It allows you to unlock some of the equity (money) tied up in your property, whilst allowing you to continuing living in your home. If you have an existing mortgage on your home, equity release may be one option for paying off this debt – and giving yourself a lump sum or some extra income in retirement.

  • Equity release is a way of accessing the value in your home.
  • You can then use it for a variety of purposes, including paying off debts, gifting family and funding home improvements, or even buying your long-term care.

There are different types of Equity Release, but basically it is a loan secured against your property. The amount you can release from your property depends on the value of your home, your age and personal circumstances .. The interest rate charged is dependent on many factors, but you can often fixed the rate for the life of the Equity Release,.

With Equity Release you have the option on whether you want to make money payments or not, if you make monthly payments the amount owed remains the same.  If you don’t, then the payments are added to the loan, most providers offer a no negative equity guarantee, so the debt will never be higher than the properties value.  Once the property is eventually sold, the proceeds repay the Equity Release mortgage and any remaining equity will be distributed.

In order to meet the criteria, you must be over 55 and have owned your home for at least two years. If borrowing as a couple you must both be over 55. You must also meet the criteria of a specific equity release provider. Any existing mortgage on your property has to be repaid first then any remaining funds released can be used for nay purpose.

If you own your property outright then there are no restrictions on what you use the money for. Although there could be some inheritance implications if the money is being gifted.

Equity release is a way to release the value of your home, to help you fund your retirement. There are many options for releasing equity from your property, it’s important you understand them all.

In this section we look at the main types of equity release products available:

  • Lifetime mortgages (including fixed and variable rate)
  • Home reversion plans or deferred annuities

You can stay in your home for life (or until you move into long term care) as long as you pay all of your household bills and maintenance costs.

This means that you must have sufficient income to cover any equity release payments  and any other charges associated with owning the property such as utility costs, repairs, insurance premiums, council tax etc.

If you have a current mortgage, you must use the money to pay off your mortgage. If you’re nearing retirement and still have a mortgage, equity release is a great way to free up cash that would otherwise be tied up in your home.

Any money remaining, you could also use it for:

  • Home improvements
  • Pay off other debts
  • Long term care costs (if you are unable to work due to illness or disability)
  • Supplementing your income if you wish to work part time after retiring from full time employment
  • Gifted to family, please consider there may be inheritance tax implications.

Maximum amount to release – You can release up to a maximum of 40% of your home’s value if aged 55-65, 52% if aged 66-75 and 55% if aged 76-95. If you release more than the maximum amount this will be treated as income and you may have to pay tax on it.

Things to consider with an Equity Release

  • Equity release can reduce the amount of inheritance you can leave
  • Any lump sum released could affect entitlement to means-tested benefits
  • Interest rolled up needs to be repaid when you die or move into long term care
  • Home reversion plans involve selling all or part of your home
  • It is a requirement of equity release to repay any standard mortgage you have
  • A fee may be payable for any advice you receive

Equity release is not the only option for freeing up cash in retirement. Downsizing, or borrowing money from a family member, could be preferable alternatives to releasing equity from your home.

Below are some of the lenders we work with